MIDLAND, Texas—Unlike Las Vegas, what’s happening in West Texas doesn’t stay in West Texas. The Permian Basin’s production boom will alter the world’s energy business at a fundamental level as its surging crude output goes overseas, according to a Buckeye Partners LP executive.
“When I go to conferences in London, Rio, Singapore and elsewhere, there are panel discussions that talk about the Permian Basin,” Ismael Hernandez, vice president for global business development at Buckeye Partners LP (NYSE: BPL), told a record crowd at Hart Energy’s 3rd annual Midstream Texas conference on May 24. “Make no mistake, this is a global phenomenon. I’m excited to be here.”
But the first problem Permian producers face is getting production out of the basin that sprawls across thousands of square miles of West Texas and crosses over into New Mexico. Hernandez discussed four recent energy analyst projections of crude oil takeaway capacity. All agree that sometime soon, possibly as early as fourth-quarter 2018, Permian production will exceed the capacity of the multiple pipeline systems serving the region. “Bottlenecks for NGL will happen sooner,” he cautioned.
Hernandez said crude takeaway capacity is expected to plateau somewhere under 3.5 million barrels per day (MMbbl/d) in early 2018 and is expected to stay at that level until the end of 2020 when additional pipeline capacity will go onstream. Meanwhile, production could surge as high as 4.5 MMbbl/d by third-quarter 2020, according to some projections, although a number around 4 MMbbl/d is more likely.
As with natural gas in capacity-constrained Appalachia, that will mean significant price differentials that will hit producers’ revenues.
He advised conference attendees to keep an eye on Corpus Christi, which currently represents only 13% of Permian takeaway capacity but will be the end point for newly proposed pipelines. The Houston refining and petrochemical complex has the biggest share of current Permian capacity. Capacity headed northeast to the Cushing, Okla., storage and trading hub—delivery point for benchmark West Texas Intermediate crude—is around 550 Mbbl/d.
Capacity constraints will widen price differentials between the Midland, Texas, hub and Cushing but “greater access to Corpus Christi results in a narrower spread between Midland and Cushing,” Hernandez said. “Producers require options to maximize value.”
Buckeye has significant terminal capacity at Corpus Christi with storage, blending and splitting capabilities, as well as deepwater dockage. It is expanding its capabilities at the port with its South Texas Gateway Project, which will add tankage and dockage, including the capability to handle deep-draft Very Large Crude Carriers.
The port is also the natural target for South Texas Eagle Ford production, he noted.
Increasingly, Permian crude will need to find export markets via the Gulf Coast, which will “allow customers to stage crude and maximize value through global optionality.”
The “geographically diversified” Buckeye also has terminal assets in the Caribbean and at New York Harbor. It holds a 50% interest in London-based VTTI BV, which has crude terminals in Europe, Asia, South America and Africa. “Buckeye possesses the ability to add value to each of its customers” because of its worldwide diversification, he said.
Hernandez has had a varied career in the energy business with a strong international bent. Before joining Buckeye, he was president of Sierra Pipeline and was an executive with PMI, the international division of Mexico’s Pemex.
“All eyes are on” the Permian in today’s rapidly changing oil market, Hernandez concluded, noting “what happens will happen here first.”
Paul Hart can be reached at pdhart@hartenergy.com.
Recommended Reading
Petrie Partners: A Small Wonder
2024-02-01 - Petrie Partners may not be the biggest or flashiest investment bank on the block, but after over two decades, its executives have been around the block more than most.
CEO: Coterra ‘Deeply Curious’ on M&A Amid E&P Consolidation Wave
2024-02-26 - Coterra Energy has yet to get in on the large-scale M&A wave sweeping across the Lower 48—but CEO Tom Jorden said Coterra is keeping an eye on acquisition opportunities.
Endeavor Integration Brings Capital Efficiency, Durability to Diamondback
2024-02-22 - The combined Diamondback-Endeavor deal is expected to realize $3 billion in synergies and have 12 years of sub-$40/bbl breakeven inventory.
Exxon, Chevron Tapping Permian for Output Growth in ‘24
2024-02-02 - Exxon Mobil and Chevron plan to tap West Texas and New Mexico for oil and gas production growth in 2024, the U.S. majors reported in their latest earnings.
Patterson-UTI Braces for Activity ‘Pause’ After E&P Consolidations
2024-02-19 - Patterson-UTI saw net income rebound from 2022 and CEO Andy Hendricks says the company is well positioned following a wave of E&P consolidations that may slow activity.